Debt snowball vs avalanche, and which debt to pay off first

Debt snowball and debt avalanche, defined

Both methods start the same way. List every debt with its balance, interest rate and minimum payment. Pay the minimum on all of them every month, so nothing goes late. Then put every spare dollar on one target debt. When the target is paid off, its minimum payment rolls onto the next debt on the list, so the amount you pay each month never shrinks.

Debt snowball

The snowball method orders debts from smallest balance to largest and ignores the interest rate. The first debt disappears quickly, which frees up its minimum payment and gives you a visible win early on. Each payoff makes the next payment bigger, the way a snowball picks up size as it rolls.

Debt avalanche

The avalanche method orders debts from highest interest rate to lowest and ignores the balance. Every extra dollar goes to the debt that costs the most to carry, so you pay less interest overall and usually finish a little sooner. The catch is that the most expensive debt is often a big one, so the first payoff can take a long time.

Snowball vs avalanche on three debts

Take a household with three debts and $735 a month to put toward them: $435 of minimum payments plus $300 extra. The numbers are round on purpose so you can follow them.

The assumptions: each month, interest equal to the balance times the APR divided by 12 is added first, then every minimum is paid, then the rest of the $735 goes to the target debt. Minimums stay the same, rates don't change and nothing new is charged. In the first month, for example, the card adds $100.00 of interest ($5,000 × 24% ÷ 12), the personal loan $15.00 and the car loan $46.67.

Snowball goes personal loan, credit card, car loan, because $1,500 is the smallest balance. Avalanche goes credit card, personal loan, car loan, because 24% is the highest rate. The car loan is last either way.

Avalanche wins on paper by $162.67 ($1,783.81 − $1,621.14) and one month. Snowball clears its first debt in month 5, nine months before avalanche gets its first payoff in month 14. Both are far ahead of paying only the minimums, which takes 82 months and costs $6,274.97 in interest. Most of the savings come from the extra $300 a month.

Which debt to pay off first

In general the math favors avalanche, or ties with it when both methods put your debts in the same order. The choice comes down to how you behave over a year or two of payments, and only you know that part.

• Avalanche tends to suit people who are motivated by the total. If watching the interest charge fall each month keeps you going, and you can wait for the first payoff without losing interest in the plan, avalanche costs less.
• Snowball tends to suit people who need to see progress. If you have started payoff plans before and drifted off them, an early payoff can be worth more than the interest it costs. Fewer open debts also means fewer due dates to track.
• Either method stalls if the extra payment stops. Without the extra $300, both plans slide back toward the minimums-only row in the table above.

Two checks before you start. First, make sure the extra payment is truly spare, by working out what's safe to spend until payday after it goes out. Second, keep a small cash cushion, so a car repair doesn't land on the card you're paying down.

Hybrid payoff plans

You don't have to pick one rule and keep it forever. Many people mix the two.

• One quick win, then avalanche. Clear a single tiny balance first for the momentum and the freed-up minimum, then switch to highest rate first for everything else.
• Avalanche with a tiebreaker. When two rates are close, pay the smaller balance first. You give up very little interest and get a payoff sooner.
• Deadline first. If a promotional rate ends on a set date, or a balance will jump when it does, that debt can move up the list until the deadline passes.
• Switch when it stops working. If avalanche feels endless after a few months, moving to snowball keeps you paying. Every extra dollar still reduces debt, whichever balance it lands on.

A debt payoff plan for couples

Couples rarely bring the same debts into a relationship. One of you might have a car loan and a card from before you met, the other a personal loan, and together you might have a joint card. Sort the list into three groups before you choose a method: yours, mine and ours.

A joint account, like a joint credit card, affects both of your credit scores, as the CFPB explains on joint credit card accounts (consumerfinance.gov). Whether a spouse can be held responsible for a debt only one of you signed for can depend on the debt and on your state's laws. If that question matters, for example before marriage or during a separation, ask a lawyer where you live.

Whose debt goes first

• One household list. Put every debt, yours, mine and ours, on one list and run snowball or avalanche across all of it. Run as avalanche, this pays the least interest overall when you pool the extra money, and it suits couples who already share most of their money.
• Ours first, then each of your own. Pay down joint debts together, then each of you puts your own extra toward your own debts. This suits couples who keep separate accounts but share a household.
• Each of you on your own. Each partner runs a method on their own debts with their own extra money. It is the simplest to keep fair, and it can leave one person paying off a high-rate card alone while the other has spare money each month.

Fairness gets tricky when one of you brings in far more debt. Some couples put extra toward debts in proportion to income, the way many share bills. Others agree that debt from before the relationship stays with its owner while new debt is shared. Write the rule down so you both know it. If you haven't decided how your accounts are set up yet, joint vs separate accounts covers the trade-offs.

The two of you may also want different methods. A partner who needs early wins can snowball their own list while the household's joint debt goes avalanche. Write down the order and the monthly extra, and look at the list together every month or two so neither of you is guessing.

When neither method works

Snowball and avalanche both assume you can cover every minimum and still have something extra. If the minimums alone are more than you can pay, changing the order won't fix it. Start by calling each lender before a payment is late to ask about a hardship program, a lower payment or a different due date.

A nonprofit credit counseling agency is another option. The CFPB says a nonprofit credit counseling service can try to work with you and your creditors on a debt management plan you can afford, and usually helps with a budget too. The CFPB covers this on its page about debt relief programs (consumerfinance.gov). Some agencies charge fees for a plan, so it's worth asking what they are before you sign up.

Be careful with debt settlement companies. On the same page, the CFPB warns that they often charge expensive fees and typically tell you to stop paying your credit card bills, which usually brings late fees, penalty interest and other charges, and creditors will likely step up collection efforts. It says settlement can hurt your credit scores, can lead to a creditor suing you, and may leave you deeper in debt than when you started. It also lists warning signs, such as a company that charges fees before it settles any debt.

If a debt is settled for less than you owe, the IRS says that in general the canceled amount is taxable, with some exceptions and exclusions, in its topic on canceled debt (irs.gov). For bankruptcy, or if you're being sued over a debt, talk to a lawyer. A legal aid organization near you may be able to help.

Find the extra payment without coming up short

Either method depends on an extra payment you can keep making. The risky part is sending it and then finding out a bill was still coming.

Common questions